PLAYSTUDIOS, Inc. (NASDAQ:MYPS) Q1 2024 Earnings Call Transcript

PLAYSTUDIOS, Inc. (NASDAQ:MYPS) Q1 2024 Earnings Call Transcript May 6, 2024

PLAYSTUDIOS, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone, and welcome to the PLAYSTUDIOS First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Samir Jain, Head of Investor Relations and Treasury. Mr. Jain, you may begin.

Samir Jain: Thank you, operator. Good afternoon, and thank you for joining us for PLAYSTUDIOS first quarter 2024 earnings call. Joining me on the call today are our Chairman and CEO, Andrew Pascal; and our CFO, Scott Peterson. Before we begin, let me remind you that during the course of this call, we will make forward-looking statements. These statements are based on our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of the risks and uncertainties that may affect our future results. I would like to remind everyone that we’ll discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP.

Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our first quarter earnings release and in our SEC filings. With that, I’ll pass the call to Andrew.

Andrew Pascal: Thank you, Samir, and welcome everyone to our first quarter 2024 earnings call. As always, our commentary today is in addition to the financial disclosures we made in our press release. I encourage you to take a look at the release for a summary of our more recent performance. I’ll begin with a few thoughts on the quarter and the company’s outlook, after which Scott will follow-up the discussion of our financials, and then, we’ll open the call up for your questions. Revenues and adjusted EBITDA on the quarter were ahead of consensus expectations in our own internal plans. On a year-over-year basis, and as expected, both metrics were down from year-ago levels. As I alluded to during our last call, many of our products are undergoing meaningful changes, which we expected to temper this quarter’s operating performance.

This was by design as we focused on building the infrastructure needed to revitalize these gains and position them for growth. As a quick recap, initiatives in 2024 include a portfolio-wide adoption of our updated myVIP loyalty program, restoration of myVEGAS and myKONAMI, the generalization of playAWARDS, the launch of at least one new Tetris title, and an expansion of monetization within the Brainium portfolio. We’re making notable progress in all these fronts, and I believe we’re on our way to exiting the year at an improved run rate. Let’s delve a bit more deeply into our playGAMES business division. Overall, the results in playGAMES continue to benefit from momentum in our growth portfolio. Tetris was again the standout as its revenue and DAU were well ahead of year-ago figures.

High levels of organic traffic were amplified by the recent fascination with Willis Gibson, a 13-year-old Tetris player who became the first person to defeat the game. The global reaction that ensued reaffirmed our belief in this beloved franchise and our plans for tapping its unrealized potential on mobile platforms. With this in mind, our Tetris Prime team has been working hard on refreshing the looking feel of the existing game, elevating its creative execution to the standards that are more consistent with the rest of our portfolio. Our goal is to have this new version ready for Tetris’ 40th anniversary in June. We also plan to complement this core Tetris title with at least one new casual variant later this year, likely in the third quarter.

With the mobile license in place for the foreseeable future, our long-term ambition is to establish Tetris as a premier mobile gaming brand. It’s also worth noting that we continue to enjoy solid momentum from our Brainium portfolio, which helped this quarter’s results. We’ve been introducing new ad units and optimizing fill rates, which has driven an uptick in monetization. We’re expecting further improvements as we introduce rewarded video and complete the integration of a myVIP program. A unified and consistent execution of our loyalty solution across all of our primary titles is a top priority for us and something we’re committed to accomplishing in the coming months. Our core portfolio is generally trending in line with the broader social casino industry, which continues to be challenged.

We expect this to be the case throughout 2024, so we don’t anticipate the industries we bound in this year. As a result, our focus remains on refining our technology tools and operating capabilities, which should position as well when the market dynamics improve. With that said, our top priorities to better leverage our earnings, cross our collection of social casino titles. In support of this, we’ve transitioned our myVEGAS and myKONAMI games to Tel Aviv and are deep into the process of updating the games and improving our operations. This has been an ambitious undertaking, which was further complicated by the conflict in Israel. But we’re making good progress, which is reflected in the more recent pickup in daily conversion rates. We’re also working on increasing our direct-to-consumer business, which is largely nascent today.

The primary focus to more effectively leverage our myVIP.co player portals with our active monetizers. The use of our loyalty program as a primary driver of direct business presents us with a differentiated strategy. Over time, I believe this will allow us to grow our direct sales and further improve our margins. Turning to playAWARDS, we continue to focus on two key themes: one, fortifying our industry-leading platform by advancing its technologies and adding new players and rewards partners; and two, generalizing the platform for external use. Third-party game publishers remain interested in our unique offering and we continue to qualify our best to structure a partnership. We expect these conversations to continue throughout the coming quarters with the goal of formalizing the pilot relationship before the end of the year.

As these partnerships mature, we believe we can evolve playAWARDS from a cost center to a revenue generating loyalty as a service business. Before turning the call to Scott, I want to discuss our capital position and plans for investing our available cash. We restarted our share repurchase program in the first quarter and have bought an additional $4 million of stock for today. We view our share price as deeply discounted and believe buying back our own stock rates value for all shareholders. At the same time, we remain committed to identifying, completing transformative M&A transactions. We continue to actively search for compelling opportunities and are in keeping with our overall strategy and expansion plans. Our goal remains to use our capital to enhance our strategic position, drive incremental growth, and increase the value of our company.

I’ll now turn the call over to Scott to provide some additional comments. Scott?

Scott Peterson: Thanks, Andrew. Good afternoon, everyone. In addition to today’s press release, our Form 10-Q will be filed shortly. Please look to those filings for a comprehensive summary of our first quarter results. We started here strong with quarterly net revenues and consolidated adjusted EBITDA ahead of consensus expectations. First quarter consolidated adjusted EBITDA of $15.3 million was 14% lower than a year ago, while net revenues of $77.8 million were 3% lower. As a reminder, the first half of 2023 results include the benefit of a licensing agreement that ended later in the year. Adjusting for the impact of this agreement, first quarter consolidated adjusted EBITDA and net revenues would have been roughly flat with last year’s amounts.

As mentioned in our last call, we are anticipating building strength throughout the year. This is due to the numerous initiatives underway that will layer into our results sequentially. DAU was $3.5 million and MAU was $14.8 million, down 2% and up 13%, respectively, from last year. MAU increased due to the Tetris activity related to the Willis Gibson exposure of beating the game. However, Tetris DAU increased over the quarter at a more modest rate. DAU declined in total, primarily through the core portfolio of our social casino games, partially offset by the Tetris increase. ARPDAU for the quarter was $0.24 flat with year ago results. No will hear were the double-digit gains in myVEGAS, myKONAMI, and Brainium. Turning to playAWARDS, we continue to make progress expanding the functionality and scope of the platform.

We closed the quarter with 521 available rewards and 113 reward partners. Over 500,000 rewards were purchased in the quarter, a 14% increase from a year ago. We remain focused on a full integration of playAWARDS and myVIP into our games and continue to seek out opportunities to externalize the platform. We ended the quarter with approximately $127 million in cash, no borrowings, and full availability of our $81 million revolver. As Andrew mentioned, we resumed repurchasing our shares during the quarter and have bought an additional $4 million of stock through today. As such, we have $46 million remaining on our share repurchase authorization and continue to view share buybacks as an accretive and compelling use of our capital. In addition to repurchases, our broader capital allocation goals remain the same, investing in our gains, building and scaling playAWARDS, and the pursuit of strategic and accretive M&A.

Our 2024 financial guidance remains the same, revenues in the range of $315 million and $325 million, and consolidated adjusted EBITDA between $65 million and $70 million. I’ll now turn the call back to Andrew for some closing remarks.

Andrew Pascal: Thanks, Scott. Before we end our prepared remarks and open the call for questions, I’d like to touch on a few highlights. We had a strong quarter with revenue and adjusted EBITDA above our end [ph] Street expectations. We remain on track to meet our full year earnings guidance, which calls for positive sales earnings growth this year. Changes in myVEGAS and myKONAMI are in process, and we’re encouraged with the progress. We believe both gains have the potential to meaningfully improve monetization this year. We remain on track to a full integration of our updated loyalty solution into all of our gains by year-end. In addition to better game metrics, we expect the integration of myVIP.co to drive higher direct sales.

Brainium’s results are showing sequential strength on the back of expanded advertising efforts. We look for continued momentum through the year. Tetris continues to grow materially in its position for a strong 2024. Two new Tetris games are in development, with the goal of launching one later this year. We continue to explore ways to open playAWARDS to external platforms. Conversations with third parties continue and remain confident that playAWARDS can evolve into a profitable standalone business. Finally, we restarted our share repurchase program this quarter, and we continue to believe our stocks trade in well below fair value and represents tremendous value. With that, I’ll turn it over to the operator. Operator, please open the line for questions.

Operator: Thank you. And, ladies and gentlemen, at this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Ryan Sigdahl with Craig-Hallum Capital Group. Please state your question.

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Q&A Session

Ryan Sigdahl: Hey, good afternoon, guys.

Andrew Pascal: Hey, Ryan.

Ryan Sigdahl: I want to start with the playAWARDS. What was the royalty revenue last year? Can you remind me what it exactly was and why it didn’t repeat? And then talk through the pipeline of the B2B opportunities and licensing opportunity for playAWARDS and then kind of lastly along with that, when should we expect for the segment to inflect to profitability and self-sustaining?

Andrew Pascal: Yeah. Thanks, Ryan. On the first question, if you recall, last year we had a relationship with a technology provider related to a suite of blockchain technologies that we were going to incorporate into our platform company called Forte. So we had a licensing agreement in place with them, where we were making use of their technology and in turn they were licensing from us some of our intellectual property and certain rights to leverage a bunch of the work that we had done in the playAWARDS space. So that expired towards the end of the year and that’s why that’s not a non-recurring revenue line item. On the B2B efforts, I mean as I alluded to in our remarks, I mean we’ve had a bunch of conversations and these are dating back to last year with a number of different game publishers just to qualify the overall opportunity and we’ve taken on a lot of the feedback that we received and continue to invest in evolving our platform and tools in response to some of that feedback and we have active conversations that are still ongoing, which is why we’ve kind of established an expectation that before the end of the year.

We’ll have, we believe, our first pilot program in place and then based upon the performance and success of that program. We’ll converge on what ultimately will be our commercial model and resolve how it is that will scale that business. So the third question is to when it would turn profitable, we can’t really provide any indication, but it’s certainly not assumed to impact this year’s performance, and we’ll certainly provide a bit more visibility and guidance once we have it ourselves.

Ryan Sigdahl: Helpful. Thanks, Andrew. Just a follow-up on the exchange with Forte. Was that effectively a zero margin, zero EBITDA, then since you were exchanging technology for technology effectively?

Andrew Pascal: No, it was a high margin opportunity. I mean, we received compensation and consideration for licensing and for the use of select IP, and so it was high margin.

Ryan Sigdahl: Got you. I didn’t know if you were paying back to them for their technology, but makes sense. Moving along to Tetris, it looks like one of the Tetris games is live in Canada, another one says coming soon in the U.S., but can you elaborate on which one of those you expect in Q3 and then any more comments on the game variants and who the targeted audience for these Tetris games will be?

Andrew Pascal: Sure. Well, so we’re really excited, obviously, about Tetris as a franchise you might not know that in June, it will be the 40th anniversary of Tetris. And so, we’re obviously looking forward to the elevated kind of interest that Tetris will likely have and we’re going to take advantage of that and be a part of all the campaigns and celebrating with the 40th anniversary. A big part of that will be the refresh and revamp of our existing Tetris Prime products. So that’s been ongoing and that’ll be live in the June timeframe. As far as the new Tetris products are concerned, we have two casual Tetris products that have been in development for over a year now. Both are continuing to advance. As we’ve indicated, fully expect one of them will launch this year.

We’re not quite ready to identify and start speaking to which of the two we’re going to launch with. But suffice to say, we’re feeling pretty comfortable about the progress the teams are making. And as far as the target audience, it’s a broader more casual audience. A lot of the people that are finding and playing Tetris today tend to be more of the purists. And we believe that there’s a very big audience out there that would love to play Tetris on a mobile device. The experience of it is a little bit different mobile games, obviously, have evolved quite a bit since the first introduction of Tetris as a game format. And so we think that a bit of a hybrid games that take advantage of really proven block puzzle mechanics along with some of the other Meta features that you see in the most popular casual games will make for a more interesting and accessible game for a much bigger audience.

So that’s our focus in terms of the consumers we’re targeting.

Ryan Sigdahl: Very good. Thank you. Good luck.

Andrew Pascal: Thank you so much, Ryan.

Operator: Our next question comes from Aaron Lee with Macquarie. Please state your question.

Aaron Lee: Hey, good afternoon, guys. Thanks for taking my question. So you guys saw a nice uptick in rewards purchases this quarter, obviously, both in the number of units and the retail value. Is there anything to unpack there just in terms of the driver of that and anything you can comment on in terms of initiatives to move these metrics higher ahead of your loyalty platform commercialization? Thanks.

Andrew Pascal: Yeah. No, thanks for the question. The rewards exemptions are pretty well distributed. The team’s done a great job, continuing to optimize the portfolio of rewards that we offer. We find that our players really enjoy a lot of the events that we conduct, so the types of activities and events where people can go and mass and participate in an experience like myVEGAS [Slots see] [ph]. And so, we’re looking at stepping up our efforts around some of the proprietary things that we’re doing along the events dimension. So we have a big initiative that we’re going to be launching called the World Tournament of Slots, which we’re effectively going to crown the world’s best slot player. And that’ll be across our entire portfolio and we have a whole series of tournaments that’ll take place in-game let people qualify for a destination-based live event that’ll host a large audience number of our players.

So that gives you a hint into where it is that we’re seeing a lot of opportunity. But across all the various categories, we continue to see really good momentum, so it’s nice to see that the redemptions are pretty diversified.

Aaron Lee: Great. That’s interesting. And then just a quick follow-up, just with regard to your guidance, which you’ve maintained. Just given that the quarter came in above expectations, has anything changed in terms of how you’re thinking about the cadence of the quarters or the weighting to the back half of the year? Thank you.